Pros and cons of refinancing
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Refinancing your home loan is a big decision, so it’s vital to consider the pros and cons and understand the different types of refinancing available.
Whether you’re after a better deal or different features, refinancing your home loan to a lower rate can help reduce your mortgage repayments. But it’s important to note that refinancing is not without its costs and risks.
Pros of refinancing
Reduce your mortgage payments
One of the main draws of refinancing is lowering your monthly mortgage bill. Using a mortgage repayment calculator, we can see that the difference between a 6.50% p.a. and a 6.00% p.a. interest rate is a saving of $154 per month, on a $500,000 loan paid over 25 years.
Reduce the total amount of interest you pay
Refinancing to a lower interest rate doesn’t just have the short-term effect of lowering your monthly repayments. It can also save you big bucks over the long term.
For example, if you had a $500,000 loan and paid 6.50% p.a. interest on it for 25 years, you’d pay double in interest than your initial loan balance by the time you’ve finished paying for it – $512,811.
Refinancing to a 6.00% p.a. rate would cost you less, at $466,452 – a saving of $46,359.
Access your home equity
Home equity refers to your loan-to-value ratio (LVR), the percentage of the property value you own rather than the lender.
Typically, you build up your home equity as you pay down your mortgage because you own more of the house. This makes your LVR come down and is a great bargaining chip for lower interest rates.
Home equity can also be used to:
- Purchase an investment property
- Pay for renovations
- Invest in shares
- Buy a new car.
Shorten your loan term
When you refinance, you can often choose a new loan term length. For example, you might shorten your loan term from a 25-year loan to a 15-year loan.
Remember, a shorter loan length may mean your repayments increase. But, if you’re in a position to do so, paying off your loan quickly can save you from paying some of the extra interest that accrues with time.
Change the type of rate you’re on
If you’re on a fixed rate and want to switch to a variable rate, or vice versa, refinancing is one way to do it.
Obviously, this is where the costs of refinancing can come into play, especially if you need to pay a fixed rate break fee.
Cons of refinancing
Risk of losing equity
Depending on the type of refinancing you opt for, you run the risk of reducing your home equity. This can mean, for example, you won’t qualify for the most competitive rates from your new lender.
For example, if you have $100,000 in equity and take $30,000 out in cash out refinance, you’ll only have $70,000 equity left.
Risk of not qualifying for a new loan
Just because you qualified for your first mortgage, it doesn’t necessarily mean you’ll be approved for refinancing.
Circumstances change over time and if your refinance application isn’t approved it will impact your credit score, which could make it harder to receive a lower interest rate in future applications.
The cost of refinancing
From discharge fees to application fees, there are plenty of costs to refinance that you will want to weigh up. You might do the math and find you won’t save all that much by refinancing, once the fees are added up (especially if you’re breaking a fixed-rate contract).
Monthly repayments could increase
If you refinance to a shorter term loan, your mortgage repayments will likely go up because you’ve reduced the time you have to pay off your loan.
Typically longer loans have smaller monthly repayments, but you accumulate more interest over the life of the loan. This is worth weighing up. With a shorter loan, you might pay less interest, but your repayments can be significantly larger.
Should I refinance my home loan?
When refinancing, weighing the pros and cons is essential. It’s also smart to get in touch with a professional financial advisor, who will be able to help you understand your options.
If you need more information about refinancing check out Mozo’s home loan guides, or, if you’re at the research stage of your refinancing journey, compare refinance home loans today.
Refinance home loan comparisons on Mozo
Promoted
-
Fixed Home Loan
- Owner Occupier
- Principal and Interest
- Interest rate
-
6.14
%
p.a.
Fixed 4 years
- Comparison rate
-
5.93
%
p.a.
- Initial monthly repayment
-
$2,852
Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.
- Interest rate
-
5.54
%
p.a.
Fixed 2 years
- Comparison rate
-
5.93
%
p.a.
- Upfront fees
-
$495
- Ongoing fees
-
$0.00
- Discharge fee
-
$325.00
- Extra repayments
-
- Redraw facility
-
yes - free
- Offset account
-
yes- optional with $10/month
- Maximum loan to value ratio
- 90.00%
- Minimum borrowing amount
- $50,000
- Maximum borrowing amount
- $3,000,000
- Type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- -
- Special offers
- -
Read our Mozo Review to learn more about this NRMA Insurance Fixed Home Loan
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Unloan Variable
- Owner Occupier
- LVR <80%
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.90
%
p.a.
- Initial monthly repayment
-
$2,995
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.90
%
p.a.
- Upfront fees
-
$0
- Ongoing fees
-
$0.00
- Discharge fee
-
$0.00
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Offset account
-
no
- Maximum loan to value ratio
- 80.00%
- Minimum borrowing amount
- $10,000
- Maximum borrowing amount
- $10,000,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special offers
- -
Read our Mozo Review to learn more about this Unloan Unloan Variable
Go to site
-
Fixed Home Loan
- Owner Occupier
- Principal and Interest
- Interest rate
-
6.14
%
p.a.
Fixed 4 years
- Comparison rate
-
5.93
%
p.a.
- Initial monthly repayment
-
$2,852
Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.
- Interest rate
-
5.54
%
p.a.
Fixed 2 years
- Comparison rate
-
5.93
%
p.a.
- Upfront fees
-
$495
- Ongoing fees
-
$0.00
- Discharge fee
-
$325.00
- Extra repayments
-
- Redraw facility
-
yes - free
- Offset account
-
yes- optional with $10/month
- Maximum loan to value ratio
- 90.00%
- Minimum borrowing amount
- $50,000
- Maximum borrowing amount
- $3,000,000
- Type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- -
- Special offers
- -
Read our Mozo Review to learn more about this NRMA Insurance Fixed Home Loan
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2-Year Discounted - Simple Home Loan Variable
- Owner-Occupied
- Principal and Interest
- LVR<60%
- Interest rate
-
5.54
%
p.a.
Variable for 24 months and then 5.99% p.a.
- Comparison rate
-
5.90
%
p.a.
- Initial monthly repayment
-
$2,988
Enjoy a low variable rate with no application, ongoing or monthly fees to pay. Access your money via internet banking at any time with free redraws. Make additional repayments at any time. Available for owner occupied, investment and interest only repayments.
- Interest rate
-
5.54
%
p.a.
Variable for 24 months and then 5.99% p.a.
- Comparison rate
-
5.90
%
p.a.
- Upfront fees
-
$0
- Ongoing fees
-
$0.00
- Discharge fee
-
$175.00
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Offset account
-
no
- Maximum loan to value ratio
- 60.00%
- Minimum borrowing amount
- $150,000
- Maximum borrowing amount
- $2,000,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special offers
- -
Read our Mozo Review to learn more about this First Option Bank 2-Year Discounted - Simple Home Loan Variable
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Variable Home Loan
- Owner Occupier
- Principal and Interest
- Interest rate
-
5.98
%
p.a.
Variable
- Comparison rate
-
6.02
%
p.a.
- Initial monthly repayment
-
$2,991
Competitive variable rate on up to a 30 year loan term. No application fees to pay. Unlimited additional repayments. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.
- Interest rate
-
5.98
%
p.a.
Variable
- Comparison rate
-
6.02
%
p.a.
- Upfront fees
-
$495
- Ongoing fees
-
$0.00
- Discharge fee
-
$325.00
- Extra repayments
-
- Redraw facility
-
yes - free
- Offset account
-
yes- optional with $10/month
- Maximum loan to value ratio
- 90.00%
- Minimum borrowing amount
- $50,000
- Maximum borrowing amount
- $3,000,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- -
- Special offers
- -
Read our Mozo Review to learn more about this NRMA Insurance Variable Home Loan
Go to site -
Unloan Variable
- Owner Occupier
- LVR <80%
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.90
%
p.a.
- Initial monthly repayment
-
$2,995
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.90
%
p.a.
- Upfront fees
-
$0
- Ongoing fees
-
$0.00
- Discharge fee
-
$0.00
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Offset account
-
no
- Maximum loan to value ratio
- 80.00%
- Minimum borrowing amount
- $10,000
- Maximum borrowing amount
- $10,000,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special offers
- -
Read our Mozo Review to learn more about this Unloan Unloan Variable
Go to site -
Simple Home Loan Variable
- Owner-Occupied
- Principal and Interest
- LVR<60%
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.99
%
p.a.
- Initial monthly repayment
-
$2,995
Enjoy a low variable rate with no application, ongoing or monthly fees to pay. Access your money via internet banking at any time with free redraws. Make additional repayments at any time. Available for owner occupied, investment and interest only repayments.
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.99
%
p.a.
- Upfront fees
-
$0
- Ongoing fees
-
$0.00
- Discharge fee
-
$175.00
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Offset account
-
no
- Maximum loan to value ratio
- 60.00%
- Minimum borrowing amount
- $150,000
- Maximum borrowing amount
- $3,500,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special offers
- -
Read our Mozo Review to learn more about this First Option Bank Simple Home Loan Variable
Go to site -
Fixed Rate
- Owner Occupier
- Principal & Interest
- <80% LVR
- Interest rate
-
5.99
%
p.a.
Fixed 3 years
- Comparison rate
-
6.89
%
p.a.
- Initial monthly repayment
-
$2,995
Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.
- Interest rate
-
5.99
%
p.a.
Fixed 3 years
- Comparison rate
-
6.89
%
p.a.
- Upfront fees
-
$160
- Ongoing fees
-
$0.00
- Discharge fee
-
$160.00
- Extra repayments
-
yes - free up to to lesser of 5% of original fixed loan amount, or $5,000 each year
- Redraw facility
-
no
- Offset account
-
Optional - $10 per month - 1 year fixed term only
- Maximum loan to value ratio
- 80.00%
- Minimum borrowing amount
- $20,000
- Maximum borrowing amount
- -
- Type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special offers
- $3,000 cashback for eligible First Home Buyers borrowing $250k+, $2,000 cashback when you refinance loans of $250k+, <80% LVR, settle within 180 days for first home buyers, 120 days for refinances. Excludes refinances from ANZ, ANZ Plus and Suncorp.
Read our Mozo Review to learn more about this ANZ Fixed Rate
-
Mortgage Simplifier
- LVR<80%
- Owner Occupier
- Principal & Interest
- Interest rate
-
6.14
%
p.a.
Variable
- Comparison rate
-
6.17
%
p.a.
- Initial monthly repayment
-
$3,043
Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.
- Interest rate
-
6.14
%
p.a.
Variable
- Comparison rate
-
6.17
%
p.a.
- Upfront fees
-
$350
- Ongoing fees
-
$0.00
- Discharge fee
-
$250.00
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Offset account
-
no
- Maximum loan to value ratio
- 80.00%
- Minimum borrowing amount
- $150,000
- Maximum borrowing amount
- $2,000,000
- Type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Fortnightly, Monthly
- Special offers
- -
Read our Mozo Review to learn more about this ING Mortgage Simplifier
Your selected home loans
* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
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